Are U.S. Stocks Cheap?

P/E ratios can make equities look cheap or pricey based on how they are calculated. How to make sense of this key question.

Based on the ratio of share prices to earnings, are U.S. stocks more expensive or cheaper than usual? That's a simple but important question with a complicated answer.

Last year, the Standard & Poor's 500 index of large U.S. companies gained 30%, not counting dividends, its strongest result since 1997. Earnings for index members hit record highs, too. The index stands at 15.2 times forecasted operating earnings for 2014, according to S&P. (More on "operating" in a moment.) The average since 1988, when...